New bill could extend National Flood Insurance Program five more years

November 21, 2017

The NFIP was set to expire Sept. 30, and with no replacement plan in place after five years to make one, Congress voted in early September to extend the program until Dec. 8 to allow time to come up with a solution.

A bill was approved by the U.S. House Nov. 14 and is making its way to the Senate. H.R. 2874, also called the 21st Century Flood Reform Act, reauthorizes the NFIP for five years and includes a few new elements to improve the program. It was sponsored by Representative Sean Duffy of Wisconsin.

In coastal areas of Florida, all homeowners with a mortgage are required to obtain flood insurance. In other areas of the country, flood insurance may be required too, or some people choose to buy into it. The insurance premiums feed into the National Flood Insurance Program, which pays out when properties are destroyed from a flood.

Currently the NFIP is managed by the federal government, as private insurers pulled out of the program years ago. The insurance program has a federal "backstock," or a pot of money the premiums pay into. There are very few private-sector insurance companies that sell flood insurance, so most buyers go through the federal system. However, if approved, 2874 would open up a platform for those private companied to start offering flood insurance again.

"It incorporates the Ross-Castor bill to create a competitive, private option," said District 19 Representative Francis Rooney. "It's conceivable for all but multiple loss properties that the private market will be more competitive."

U.S. Representatives Dennis Ross and Kathy Castor of Florida introduced a bill in March to reauthorize the Federal Aviation Administration, but tacked on language to remove "excessive restrictions" and allow states to regulate and license private flood insurance, according to a press release from the office of Castor. The flood insurance language was deleted in the Senate.

Multiple loss properties have been one of Rooney's biggest issues with the NFIP; these properties that flood frequently make up less than 2 percent of the 87,000 claims since 1987, but they eat up the backstock, he said. The new bill includes $1 billion in funding to either elevate the properties or allow the government to buy out those properties to avoid the repetitive payout. These properties will also be subjected to 15 percent annual premium increases if their current premium doesn't reflect the full risk of the property.

Another part of the bill makes sure current structures are grandfathered - as in, a homeowner does not have to elevate the home they buy unless they raze the old structure and plan to build a new one.

"I wanted to make sure that stays in," Rooney said. "It's one thing if you scrap a house and start over, but if you're selling... you have to be able to sell your house."

Chris Lopez, the director of policy for the Royal Palm Coast Realtors Association, said while he and the association support the five-year reauthorization, the contents of the bill won't be a long term fix.

"The funding of the program is a serious concern," he said. "I think this is a short-term solution, not a long-term, all encompassing solution."

The current program has almost reached its borrowing limit of $30 billion. It's in debt because of the repetitive loss properties and the severity of the loss incurred by those living in severe flood zones. None of the new language would resolve that issue, Lopez said. But, he's still counting it as a win.

"They're extending the current program with minor alternations to make sure it doesn't expire. An extension is a win," he said. "It's going to give homeowners what they need, a break from the fear of rates skyrocketing overnight."

Lopez complimented Rooney's efforts to make sure the community was informed and opened lines of communication for feedback.

"Rooney and his staff have been extremely proactive in reaching out to people involved in the flood insurance discussion," he said.

Rooney also said the program would need a more extensive review in the next five years, but that in the meantime, if passed, H.R. 2874 could be an "incubator" to see where the program is in five years and how a private market option has impacted flood insurance.

The bill still has to go to the Senate and then President Donald Trump for final approval, and the deadline is fast approaching.

"It's a big deal for our area. Hopefully the Senate will maintain the main concept of the bill," Rooney said. "They might tinker with it, but hopefully the provisions we decided on will stay. The economics are pretty compelling."